Key Terms
Bankruptcy
A federal proceeding in which an individual or business is relieved of most debts and undergoes court-supervised reorgan
Debtor
The individual or business entity who owes money to others.
Creditor
An individual, business, or governmental entity to whom money is owed. A creditor holds a claim against the debtor.
Claim
The right of payment from the debtor.
Voluntary bankruptcy
Proceeding initiated by the debtor.
Involuntary bankruptcy
Proceeding initiated by creditors to force the debtor into legal bankruptcy so creditors may recover assets.
Liquidation
The process of converting assets into cash to settle debts. Under Chapter 7, this includes winding up business affairs b
Goal
Restructure the debtor's finances and pay creditors over an extended period while the debtor remains in business.
Purpose
Adjust debts for individuals whose debts are small enough and income large enough that substantial repayment is feasible
Bankruptcy estate
The debtor's legal and equitable interests in property at the time the bankruptcy petition is filed.
Common thread
Denial occurs when the debtor acts wrongfully, fails to cooperate, or fails to maintain sufficient records.
Automatic stay
Filing the petition immediately prevents creditors from beginning or continuing collection efforts against the debtor.
Protects the debtor
Stops collections while reorganization plans are developed.
Protects creditors
Prevents the debtor from transferring assets to avoid payment; prevents inequitable distribution of assets among credito
Trustee
The representative of the estate; responsible for prioritizing and satisfying creditors' claims.